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Loan and Mortgage Terms Glossary

Zero-Coupon Bond:

A security sold at a deep discount from its face value and redeemed at its full face value at maturity. These bonds pay no interest. Instead, the investor's return is the difference between the purchase price of the bond and its face value when redeemed. Since these bonds do not pay interest, there are no interest coupons attached to the bond document, hence the name "zero-coupon bond." even though the yield is not paid until maturity, the return accrues and is taxable on a prorated basis each year of the bond's life.

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